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Oil Supply Up? Demand Down?? Prices Up???

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Oil Supply Up? Demand Down?? Prices Up???

Postby StlSluggers » Fri Apr 04, 2008 11:20 am

Interesting article here from Business Week. Highlights below...

"They see speculation in the market, I see decline in global inventories. I don't think this is a big surprise, that we've had a jump in price when there has been a decrease in crude inventories."— Energy Secretary Sam Bodman, Bloomberg News, Mar. 5, 2008

"It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up." — President George W. Bush, Associated Press, Mar. 5, 2008

...

Just so we can all get on the same page, here are the verifiable facts on oil supplies, production, and gasoline demand.

In January of this year, the U.S. used 4% less petroleum than we did a year ago. (Oil demand was down 3.2% in February.) Furthermore, demand has been falling slowly since July of last year. Ronald Bailey of Reason Online has pointed out that worldwide production of oil has risen 2.5% in the first quarter, while worldwide demand has grown by only 2%.

Production is expected to increase by 3.3% in the second quarter, and by as much as 4.1% by the third quarter. The net result is that the U.S. daily buffer for oil production against demand, which was a paltry 1.5 million barrels as recently as 2005, is now up to 3 million barrels in excess capacity today.

...

ExxonMobil (XOM) Chief Executive Officer Rex Tillerson was quoted by Marketwatch as saying, "The record run in oil prices is related more to speculation and a weakening dollar than supply and demand in the market." He added, "In terms of fundamentals, fear of supply reliability is overblown."

As for the speculators, in 2000 approximately $9 billion was invested in oil futures, while today that number has gone up to $250 billion.

Is this guy making a good point, or is he making the carnal sin of not evaluating the oil market from a global perspective?
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby knapplc » Fri Apr 04, 2008 11:32 am

I think the basic truth of the situation is that oil/gasoline at the pump no longer prices by supply & demand, it prices by speculation on that supply and demand. So while there may be a surplus, the confidence of the investors and brokers is what's causing our rising prices.

That's my armchair take on this situation.
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby Yoda » Fri Apr 04, 2008 12:12 pm

Oil suppliers are the biggest thieves on the planet.
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby AussieDodger » Fri Apr 04, 2008 12:30 pm

In my home town of New Plymouth, they keep finding massive amounts of oil and natural gas, and yet they always seem to have the highest petrol prices in the country. Wouldn't you think if they didn't have to ship it anywhere it would cost less?
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby StlSluggers » Fri Apr 04, 2008 12:42 pm

AussieDodger wrote:In my home town of New Plymouth, they keep finding massive amounts of oil and natural gas, and yet they always seem to have the highest petrol prices in the country. Wouldn't you think if they didn't have to ship it anywhere it would cost less?
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Drilling and refining can happen in two, totally different places.
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby AussieDodger » Fri Apr 04, 2008 1:00 pm

StlSluggers wrote:
AussieDodger wrote:In my home town of New Plymouth, they keep finding massive amounts of oil and natural gas, and yet they always seem to have the highest petrol prices in the country. Wouldn't you think if they didn't have to ship it anywhere it would cost less?
:-S
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Drilling and refining can happen in two, totally different places.


Yes that is correct.
Most of the oil reserves are out to sea there, and I think they pipe it to shore and refine it outside the city (if you can call it that).
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby mbuser » Fri Apr 04, 2008 1:08 pm

someone fill me in -- who are 'the speculators'?
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby StlSluggers » Fri Apr 04, 2008 1:11 pm

mbuser wrote:someone fill me in -- who are 'the speculators'?

People who buy futures on a commodity. In this case, oil.

If speculators continue to pay more and more for futures, oil prices better sure as hell rise, or they'll take a bath when they have to fulfill that agreement. However, this article is basically saying that the market is setting itself. So many people are betting high on oil futures that they end up controlling a significant portion of the supply of oil. Because they paid $X for the oil, they will turn around and try to sell it at a markup, which they get from other speculators. Thus, the price has to go up even though normal economic indicators of production and consumption say that the price should go down.

I heard that this could be happening years ago, but I always assumed the oil market was way too large for any "fixing" of this nature to occur.
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby mbuser » Fri Apr 04, 2008 1:35 pm

makes sense. and since this is america, who has the money invested has as much weight as how much they have invested

interesting blurb about ethanol in there too -- once again, the right people stand to gain from the idea that ethanol can be viable on a large scale, so we'll throw billions at it. from a net energy and land-use standpoint, isn't it a terrible idea?
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Re: Oil Supply Up? Demand Down?? Prices Up???

Postby StlSluggers » Fri Apr 04, 2008 1:38 pm

mbuser wrote:interesting blurb about ethanol in there too -- once again, the right people stand to gain from the idea that ethanol can be viable on a large scale, so we'll throw billions at it. from a net energy and land-use standpoint, isn't it a terrible idea?

I don't like ethanol for one reason and one reason only: nature.

Weather-impacted energy sources are a terrible idea. Period.
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